Evercore Inc (EVR) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Evercore Partners second quarter 2010 financial results conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference call will be opened for questions. (Operator Instructions). This conference call is being recorded today, Tuesday, August 3, 2010.

I would now like to turn the conference over to your host, Evercore Partners' Chief Financial Officer Robert Walsh. Please go ahead, sir.

Good morning, and thank you for joining us today for Evercore's second quarter 2010 financial results conference call. I'm Bob Walsh, Evercore's Chief Financial Officer, and joining me on the call today are Ralph Schlosstein, President and Chief Executive Officer, and Roger Altman, our Chairman. After our prepared remarks we will open up the call for questions.

Earlier this morning we issued a press release announcing Evercore's second quarter 2010 financial results. The Company's presentation today is complementary to that press release which is available at our website at www.Evercore.com. This conference call is being webcast live on the Investor Relations section of the Evercore website and an archive of it will be available beginning approximately one hour after the conclusion of this call for 30 days.

I want to point out that during the course of this conference call we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited, to those discussed in Evercore's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. I want to remind you that the Company assumes no duty to update any forward-looking statements.

In our presentation today, unless otherwise indicated, we will be discussing adjusted pro forma or non-GAAP financial measures which we believe are meaningful when evaluating the Company's performance. For detailed disclosures on these measures and their GAAP reconciliations, you should refer to the financial data contained within our press release which, as previously mentioned, is posted on our website.

We will refrain from repeating the information included in the press release and focus instead on the key opportunities, challenges and changes in our business. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we've noted previously, our results for any particular quarter are influenced by the timing of transaction closings. I'll now turn the call over to Ralph.

Thanks very much, Bob. Good morning, everyone, and thanks for joining us. Let me start by saying that despite the disappointing earnings this quarter, the fundamentals of our Advisory and Investment Management businesses continue to improve and our strategic initiatives all are on track.

With respect to the numbers, second quarter 2010 net revenues of $64.8 million represent a 9% decrease versus the second quarter last year and the second -- and a 26% decrease versus Q1 of this year. Year-to-date net revenues for the six months increased 23% versus last year, driven primarily by Investment Management, as Advisory revenues were flat for the year, consistent with the broader M&A environment.

Our second quarter Investment Banking revenues were negatively affected by the delayed closings of a number of large M&A and restructuring transactions, all of which closed in July. Our July results include revenues of $23.5 million related to LyondellBasell's emergence from bankruptcy, most of which was actually invoiced and paid in June, but was recognized in July following Bankruptcy Court approval. If this transaction had been booked in June when it was paid, revenues would have been up 24% versus Q2 '09, up 3% versus Q1 of this year and up 42% year-to-date. This transaction, had it been booked in June, would have added $0.17 to the second quarter bottom line.

July also included the closing of several important transactions in the US, including Frontier Communications' acquisition of certain assets from Verizon and two major transactions in Europe, Babcock International's acquisition of VT and the sale of Vitaflo to Nestle. Roger will comment further on our second quarter Investment Banking results and the outlook for the Advisory business going forward.

Our Investment Management revenues increased significantly for the quarter and the six-month period, reflecting the closing of our investment in Atalanta Sosnoff at the end of May, a full quarter of Trilantic's revenues and continued progress in our early-stage businesses. I'm pleased to report that Investment Management essentially broke even this quarter on an operating basis.

The second quarter compensation ratio was 63% which is up from last quarter due to lower revenues. On a trailing 12-month basis, the comp ratio (inaudible) to trend lower in the second quarter and is now 60% which is down from 62% last quarter and 77% in the second quarter of '09. This downward trend is despite the fact that we are making investments in the future growth of our firm, both in the private funds business and the institutional equities business.

Non-comp costs increased 22% from the first quarter, driven by new businesses, the acquisitions that we've made and both the growth in the firm and the cost of execution those acquisitions and growth in our Advisory business. We continue to manage these costs carefully, but as we have said before, growth in the firm will drive costs higher and unfortunately, it is almost inevitable that both non-comp and comp expenses appear a little before revenues, affecting operating ratios and compensation ratios negatively in the early stages of new businesses.

Our second quarter net income is down 43% from the second quarter '09 and 81% from the first quarter of this year. If Lyondell had been included, second quarter net income would have been up more than 100% versus the second quarter last year and down about 15% from the first quarter. Year-to-date operating margins increased to 15% from 8% in 2009 and once again, had Lyondell been included, operating margins would have been 23%.

We have consistently said that our results should be viewed on a multi-quarter basis and that due to the timing of deal closings, our quarterly results can experience volatility in any given quarter. This quarter is a good example of that. Nonetheless, as I said earlier, we are confident that the fundamentals of our Advisory and Investment Management businesses are improving and our strategic initiatives are in fact on track.

Now let me turn it over to Roger who will provide an update on the M&A environment, and then I will return and talk about the Investment Management and business and strategic initiatives.

Good morning, everybody. The firm -- I'm going to address myself first to how we did in the second quarter and the first six months in Advisory and then some comments about the environment as a whole. The firm actually had a fine second quarter in the Advisory business. As you can imagine as a manager, I focus on, well, what are our billings and what are our cash and so, I look at our having done essentially $70 million worth of business in round numbers. And that's a good quarter for Evercore. There are always going to be accounting anomalies and you saw those in the reported income for the quarter, but from a business point of view, it was a good quarter.

Highlights during the quarter in terms of closed transactions included the sale or RiskMetrics, the sale of Vought, the LyondellBasell fee, as you saw, the (inaudible) underwriting fee, and in terms of announced transactions, the very large Qwest-CenturyLink deal, the Cerberus acquisition of Dyncorp would be among the highlights. And as Ralph just said, this new quarter is off to a particularly strong start.

I think you know that from a recruiting point of view, on Advisory the firm continues to add partners on a global basis very steadily. This year, we made some particularly strategic hires including Perk Hixon for metals and mining, Marty [Chico] for real estate advisory, Phil Kassin for chemicals and energy, which we just announced a few days ago, and Alejandro Reynoso for Mexico advisory.

We're continuing to recruit. We may or may not add additional partners this year. We have a lot going on on that front and you're going to continue to see us add partners at generally the five-to-six a year rate we've historically done.

By measure of -- by standards of fee-paying clients, it was also a good quarter. Our fee-paying clients were up for the quarter 72 versus 70 against the quarter ago and up for the six months.

Our backlog, I would describe it as quite solid and I would say that it is consistent with our having the type of year which most of you who follow us seem to be expecting of us -- in other words, a year that's well ahead of last year.

I personally look closely at productivity figures and on a rolling 12-month basis, we're right in line with where we've historically been in the US, about 10 to 11 million per partner of revenue. The only way you can really look at that is on a rolling 12-month basis, by the way.

The UK is beginning to recover. The UK has gotten off to a particularly strong start this quarter we're now in and Mexico is pretty steady by historical standards for Mexico.

So the firm is doing quite well from an advisory point of view and I think I would just note before getting onto the comments about the industry, Evercore is a much different firm today than it was a year ago or two years ago and three years ago. We have hit the number firm-wide at 54 partners, 554 people now with the additional of Atalanta Sosnoff. You all know we've gotten into the equity sales research and underwriting business and we've already done two underwritings last quarter and we will be doing more than that this quarter, I believe. And it's a much broader firm and it's a much more significant firm.

Now, comments on the environment -- it continues to be our view that the global M&A cycle is in the early stages of a classic five to seven-year up move, the type we've seen very consistently over the past four years, in other words, the up cycles tend to be five to seven years and the down cycles tend to be two to three years. And you see that in terms of the data. Global M&A for the six months was up 10% over the year-earlier period. That wasn't a rocketship, but it's steady improvement.

It's true that there's a rethink going on about the durability of the recovery itself, the economic recovery itself. You all know that; we read about it every five minutes. And there is a correlation between M&A and the recovery itself, even though that's just one element of what constitutes an M&A cycle, but the recovery, at least it's moving forward -- so is M&A. So it's our view that the cycle will be steadily upward, even if it's not rapidly upward and that gives us some confidence.

Ralph addressed the comp ratios. I would just say that in Advisory, they're going to improve, but they're really pretty good. By historical standards, we're doing better more or less every period. Just to give you one number, if you leave out the Private Funds Group and the equities initiative, both of which are brand new, and as Ralph said, our brand new initiative cost go ahead of revenues. The comp ratio for Advisory was 53%. We're going to get it lower than that but that's not bad.

So on that note, I'll hand it back to Ralph and to Bob.

Thanks, Roger. Let me talk a little bit about our institutional equities business. As you all are aware, that business was officially launched late in the second quarter. We've assembled a team of senior professionals in the business and are hiring this year is essentially complete. We have 37 professionals in the business and we expect it to reach 40 or so by the end of the year. We're making progress with getting trading counter-party permissions approved. We have signed up 23 clients who have official approved trading with Evercore and have another 39 clients in the pipeline. We have launched research coverage of 14 companies in the TMP sector and we'll be launching coverage of several companies within (inaudible) soon. And as you know, the quality of the research coverage is the key to the success of this business.

We have announced our initial team of 10 analysts about two weeks ago and we plan to launch coverage of approximately 100 companies during the third and fourth quarters, all in the TMT and [FIG] sectors.

This quarter, our capital markets advisory team participated in two offerings, as Roger said. We are currently advising clients relating to securities offerings in several core Evercore sectors, including [FIG], energy, industrials, metals and mining, real estate and transportation. Our clients, our Advisory clients, have continued to respond favorably to our expanded equity capabilities, and our equity capabilities have allowed us to engage clients in strategic discussions that we otherwise might not have had.

We have structured this business financially to manage the downside risk during the launch. The senior management of the business and our strategic partners have all invested capital and currently own a little under 25% of the business. If the business reported literally no revenues in the remainder of 2010, we estimate that it would reduce earnings per share by $0.07 to $0.08 in each of the third and fourth quarters. Of course, that is not what we expect; we expect the business to generate revenues in this quarter and next quarter, in these quarters, and we continue to expect this business to break even on a run rate basis by the end of 2011.

And as I have said, this initiative will be driven by our ability to provide capital markets advisory services to our corporate clients to provide actionable investment ideas to the institutional investors, as well as high-quality service to these investors. We have built a high-quality team and now, as is always the case in this business, it's about the execution.

Let me talk briefly about Investment Management. Operating income for the Investment Management business in the second quarter was essentially breakeven, driven by, in large part, the addition of one-month results from Atalanta Sosnoff. Assets under management increased during the quarter and are now at $15.2 billion, of course, including Atalanta Sosnoff's AUS. Excluding Atalanta Sosnoff, the business had inflows of approximately $460 million, partially offset by market depreciation of $140 million.

Fee-based revenues are up 35% from the first quarter and over 138% from the second quarter of 2009, reflecting both the inclusion of Atalanta Sosnoff and significant assets under management growth. The decline in the equity market in the second quarter clearly slowed our momentum a little bit. However, we expect to benefit from the equity market recovery since quarter-end, and after all, stocks are up about 9% since the end of the quarter. As approximately 75% of our assets in the institutional and wealth management businesses are invested in equities.

The effect of this recovery, assuming markets stay where they are, will be felt more in the fourth quarter than the third quarter, as many accounts bill based on the NAV at the end of the prior quarter.

Before I turn it over to Bob, let me make just a couple of comments in closing. First, important financial institutions regulation was -- legislation was recently enacted here in the US and there are similar efforts underway in Europe and around the world. These regulatory changes, including Basel 3, will affect over time the competitive landscape in the investment banking business. We recently had the foremost legal expert in this area make a presentation to our management committee and senior partners and at the end of that presentation, one of our partners asked him "So who benefits from this legislation?" And the response was "Well, if you're not covered by it, you probably benefit from it."

Well, we are one of those firms and our model of unconflicted advice to clients --

In other words, one of those that is not affected.

Thank you. And our model of unconflicted advice to clients with no proprietary trading activities, or any other proprietary activities, is most certainly not adversely affected by these changes, and we believe is increasing embraced by clients around the world.

Second, with respect to the Investment Management business, two independent events -- regulatory reform, which we just talked about, and the prospect of increases in capital gains taxes seem to be creating an environment in which we are receiving increased inquiries concerning acquisition opportunities for us in this business. We will continue to be extraordinarily disciplined, sticking with firms that have great investment and repeatable investment processes, those which have a great cultural fit with Evercore, where there is ongoing and significant ownership by the principals in the firm, so our interests are aligned, and very importantly, those that are only accretive to our earnings per share. We may do nothing, but there's certainly more chatter as a result of these two events.

Let me now turn it over to Bob.

Thanks, Ralph. As Ralph mentioned earlier, our costs this quarter increased to 19.8 million, driven by three factors -- new businesses, including Atalanta

Non-comp costs.

Non-comp costs -- thank you, Roger -- driven by Atalanta, the Private Funds Group and institutional equities, costs associated with acquisitions and the continued growth of our core businesses. Atalanta was a significant factor in our results overall, adding more than 10 billion of assets, 3.9 billion of -- million of revenues and 3.1 million of expenses, including .5 million relating to the amortization of intangibles.

The quarter included 1.3 million in acquisition and transition costs relating to strategic initiatives both announced and those that are -- that we are continuing to evaluation, and our occupancy costs increase, as we have discussed previously.

Going forward, and looking to next quarter, we do expect that our non-comp costs will increase, as we include three full months of operations for at Atalanta and a full quarter of operations for our institutional equities team. We are, of course, continuing to implement cost controls, particularly relating to some cost-saving opportunities that we see resulting from our increased scale.

You will note that the year-to-date adjusted pro forma effective tax rate increased to 42%. This had a significant impact on the quarter which has an effective tax rate of 50% which predominantly reflects the need to [catch up] to that higher year-to-date rate in the context of a lower income. We were able to repurchase 551,000 shares and share equivalents during the quarter.

And to wrap up, our cash position remains sound, with 223 million of cash and marketable securities on the balance sheet.

So with that, we'll open the call to questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). Your first question comes from the line of Mark Lane with William Blair & Company. Please proceed, sir.

Good morning.

Good morning.

The question is just on the core investment banking business, Advisory business. So there seems to be this perception that because announced transactions have been a little bit light the last few months, that something has changed on the margin in the business, that the big banks are healthier, they're much more aggressive, they're using their balance sheets a little bit more, and that you've lost some share. Can you just comment about your ability to win business this year and if you've seen any change in customer preference for your business model?

Hi, it's Roger. That's a good question, but two comments -- no, there not only hasn't been a diminution in our competitiveness; there's been an enhancement. And second, as you well know, I think [audio drop] entire quarters go around -- go on around here where we never talk about market share. I honestly can't remember a single conversation this quarter with Ralph or Bob or Eduardo [Mastro] or anybody else where we talked about market share. We just don't run the firm that way. We never think of it.

But our competitiveness today is stronger than it was six months ago; it's stronger than it was a year ago; it's stronger than it was two years ago. And the reasons are pretty basic and they're pretty obvious. Number one, we're a stronger firm. I think from memory today, the net number of banking partners at Evercore is 40. That's an all-time high and you can see the math in terms of the productivity figures I talked about. Most of them are in the US and they're generating a lot of business -- so (inaudible) we're a stronger firm, both in terms of partners and also the sectors we cover.

When we went public exactly four years ago, almost to the day, we covered seven sectors; today we cover 21, separate industrial sectors. So that's an additional factor. And then you have the fact that, yes, as you say some of the universal banks are recovering, but let's be honest. A lot of them have had the worst two or three years in memory and their brands and their internal cohesiveness and various other measures of their competitiveness are way below the levels of, say, 2007 or 2006. Of course, there are some in that sector, like JPMorgan, that have more or less sailed through this, to their great credit, but a lot of them have suffered enormous personnel losses, managerial turmoil and so forth. And it's going to take years for them to recover that.

So I personally feel the firm is stronger than it's ever been from a competitive point of view, and I'll just mention one thing that -- I won't say much about it for obvious reasons, but today, Evercore is advising, for example, General Motors, [BP] and Sanofi. That's right now, right today. I'm not going to say anything more about what we're doing for them. I don't think Evercore would have been in that position two years ago or four years ago and a lot of other firms would like to be.

Okay. And last --

We're doing fine. Let me add just one industry point and that is that in the second quarter, it was literally the first quarter in history where more than 50% of the announced transactions had an independent advisory firm on one side or the other. That had never happened before, so I think not only is what Roger said true of Evercore, but it is true of the independent firms generally vis--vis the large firms, notwithstanding the fact that there's been some balance sheet recovery in those firms.

Okay. And last quick one -- Ralph, you mentioned that you expected to achieve breakeven in institutional equities business on a run rate basis by the end of next year. Can you give us some idea of what sort of revenue level you think you need to get to to be at breakeven?

I really can't because I don't know the hiring that we're going to do next year, but I can tell you just as we've been in the investment management business, we're going to be extremely careful and measured in the pace at which we grow expenses until we see real visibility of revenues.

Okay. Thank you.

Your next question comes from the line of Lauren Smith with KBW. Please proceed, ma'am.

Hi, Good morning.

Hi, Good morning.

A couple of question -- I guess first, on the non-comp expense side, it was [19.8] in the quarter and Bob, your comments were that you anticipate that run rate increasing going forward. Could you maybe give us maybe a little bit more sense or direction in terms of magnitude? And then secondly, you also noted that you see some cost-saving opportunities going forward. Could you maybe again help us there in how to think about that?

Ma'am, this is Roger. Let me just make one comment to put this in perspective. The firm's non-comp to revenue ratio is going to go down. It's going to go down because it has to go down because that's a top management priority and there will be some other guys on the phone here other than me if it doesn't. So what we focus on is the ratio and it's too high and we're going to get it down, so having said that, go ahead, Bob.

Lauren, if you think about the businesses that we've added and the short periods that we've had those businesses, one month for Atalanta and on average, less than a whole quarter of cost for institutional equities, it's easy to envision that simply getting a full quarter of those businesses will add a couple of million dollars to non-comps. And then the challenge is how quickly we can implement some of the cost control opportunities if they're available to us as a result of our larger scale. So I don't see enormous growth in an absolute sense, but it will undoubtedly get a big larger. As Roger said, the key focus of this growth is to make sure the revenues catch up and that the ratio comes back down to an appropriate level.

Okay. Thanks. Thank you, that's very helpful. And just a clarification -- I think you had said $0.07 to $0.08 quarterly drag is roughly speaking -- I know you don't have -- expect this, but should the institution business generate zero revenues, that what's you estimate, sort of the quarterly drag is? Is that correct.

That's correct.

Okay. And then as far as headcount, can you just give us -- break it down by your business, what's in equities, private funds and the Advisory business?

About 300 people in the Investment Banking business and a little bit more than 200 in Investment Management. The rest of the headcount beyond that is some corporate and some other administrative folks.

And in the Investment Banking, roughly 37 are in the institution equities business and about 10 or so are in the Private Funds business.

Okay, great.

Roughly 250 are in the pure Advisory business.

Okay. And as far as the institutional equities business, is your thoughts -- are you really focused more in the short run thinking about that being more of a domestic business, or how are you thinking about the potential for bringing that across the pond?

I would say that the current time was purely a domestic business.

Okay. And then I guess one last one for me -- what's remaining -- you bought that 551,000 shares in the quarter. What's remaining on your authorization?

$10 million.

10 million, terrific. Thanks a lot.

Thank you.

Your next question comes from the line of [Funda Akashi] with JPMorgan. Please proceed, sir.

Good morning. This is [Funda Akashi] for Ken Worthington. My first question is on restructuring. Where are we in the restructuring cycle? Are we seeing a lengthening of restructuring cycle with perhaps smaller deals?

Good question. Historically, as M&A strengthens, restructuring softens and vice-versa, and you're definitely seeing that in the broad market, not Evercore, but the broad market, and you're seeing that in our own mix of advisory revenue. One of the other reasons I said, or that I think the firm is doing just fine on the Advisory side, is that last year, restructuring accounted for more or less half of our Advisory revenue and this year, it's going to be meaningfully less. I don't know what the number will finally be, but obviously, we're expecting the whole year to be a good year for our main business. So the M&A side is not just holding us even vis--vis the softening restructuring cycle that's moving [up] ahead.

Having said all that, the cycle is shifting slowly, as I mentioned in my own comments at the beginning and the restructuring side is still quite active and there are still actually quite a number of new situations. I'll give you one example. Evercore in recent years has done quite a bit more business than it ever did with financial sponsors. There still are a lot of what I would call "hung" deals in the financial sponsor community. Some of them have flexible capital structures and won't have to be restructured for a little bit of time, but those things remain active. And then you have certain other pockets of distress that continue to exist.

So Evercore's restructuring business is quite healthy, but in reality, the cycle is slowly shifting and as M&A recovers, the restructuring tends to soften, but the shift is going on slowly.

Thank you. That's very helpful. My second question is on the regional diversification of your revenues. What is the current US versus non-US revenue share? And how are things progressing over the next 18 or 24 months, given your strategic partnerships?

Well, first of all, we don't disclose that, but I would say that the geographic diversification of our Advisory business is a very, very important focus of the senior management here. Starting with Europe, which we expect to be a better contributor to our performance this year than it was last year, our alliance in Brazil with G5, where we're starting to have some encouraging results, Brazil, rest of the world, with the partner who leads that business, Corrado Varoli, and our alliances in Japan with Mizuho and in China with Citic Securities, both have active transactions underway.

We also, I would point out, have a number of our partners who are domiciled as humans in the US, but who run global advisory practices. A good example is the team working with -- that Roger described earlier -- with Sanofi. They happen to be domiciled in New York, but they run a global healthcare practice. So our business is becoming increasingly diversified globally; our clients unquestionably because they are many of the largest global companies in the world, expect that of us. And consequently, in order to be important to them, we are being highly responsive to that.

Okay, great. Thank you very much for taking my questions.

Sure.

Sure.

Your next question comes from the line of Devin Ryan with Sandler O'Neill. Please proceed.

Good morning, guys.

Hey, Devin.

Good morning.

Most of my questions have already been asked, but just following up, Roger, on your comments on restructuring, just given that the restructuring activity is slowing, and obviously, M&A is improving, but it's gradual, do you think that there could be a pocket of maybe revenue softness or a period of time where restructuring revenues have already abated, but we've yet to see really the impact from an improvement in M&A activity? I'm just trying to get a sense if there's maybe a period coming where there could be some softer revenues.

Devin, I don't see that happening unless the recovery itself is aborted. As long as the economic recovery, and that is Evercore's expectation, continues to progress, even if it's soft (inaudible) and kind of halting, the M&A cycle in our judgment will move up. And as I said, global M&A is up 10% year-over-year for the first six months. So no, I don't believe that's going to happen and by the way, there is no evidence of that in our own backlog.

Um-hum. Okay, great.

We don't comment other than eye-glazing banalities about our backlog, but there's no evidence at all of that in our backlog.

Um-hum. Okay, that's helpful. And then just following up on the equities business, I just want to make sure I'm thinking about this correctly. So the $0.07 to $0.08 potential losses with essentially no revenues in the third and fourth quarter, should we think about the fourth quarter essentially being the inflection point? I'm just thinking for modeling purposes as we're thinking about maybe that business --

No, Devin, I think it's important we put something in perspective. We told you that number so you'd know the worst that could possibly happen. It's not actually our plan; that's not our forecast. That's just so you understand that we're --

We're doing it (inaudible) the ranch here.

Yeah, we're not betting the firm on this, so -- but that's not actually our expectation. For example, we're already doing underwriting and those tend to get divided between our equities depth, so to speak, and banking. So they're already generating revenue, so I think we need to clarify that. That's not our expectation; that's just so you know that the worst that could possibly happen isn't very bad.

But I would say, Devin, that the fourth quarter is when you would start to see a change in the pace of revenues, particularly commissions, and this is going to be a -- it's not going to be a [V] because it's going to be driven by a couple of things. Number one, we have to get a lot of accounts open. We want to cover the 200 largest institutional accounts and getting counter-party agreements with all of them takes time. In some cases, it takes a little more time than others.

Second, we have to provide meaningful research to them on a broad enough group of companies that we start to show up in the research and portfolio manager voting within those investment management firms. And finally, obviously, we need to be in front of our corporate clients more since this is a relatively new capability for the firm. I think all those things start to happen in a meaningful way in the fourth quarter, but I would expect they would continue to happen quarter-by-quarter throughout 2011 to the point where we -- just as we said with the Investment Management business, we had a very clear path in our minds to a breakeven run rate and in the institution equities business, we have exactly the same thought process.

Got it and that's helpful. Thanks a lot, guys.

Thank you.

Your next question comes from the line of Daniel Harris with Goldman Sachs. Please proceed.

Hi, good morning, guys.

Hi.

I'm just wondering if you could give us a little bit -- a little more color on how things are going with the Trilantic acquisition and how the investment (inaudible) on -- how you're thinking about where that's being booked or how that's performing, and any idea about when they might raise the next fund?

We have virtually no equity investment in their current funds. We bought a modest stake in the general partner interest of the business. So there's really no volatility in revenues or earnings that would come from changes in the value of the Trilantic [4], which is the fund that they're on right now, portfolio. You may have noted that they recently announced the sale of MW Brands, a tuna manufacturing company. That was a very, very successful transaction. There are a number of other things going on in their portfolio that are positive and I think their expectation is at some point toward the middle or end of next year, that they would be in the market with Trilantic [5], although that is obviously subject to variability, depending on how they invest their remaining capital they have, the speed at which they invest the remaining capital that they have.

Okay. That's helpful. You guys also talked a little bit about having some activity in 3Q, it seems like, on the underwriting side. Any color around how you're participating? I'm guessing those are mostly co-manager roles and to some extent, any idea what the timing on some of those deals look like? Do they look like they'll close in 3Q or is more 4Q at the time?

I would say it's almost impossible at this point to predict whether something is Q3 or Q4. I don't know if you follow the IPO calendar; I'm sure you do. It's big, but slow. And so obviously, if we have continued strength in the equity markets, that may change a little bit, but if I were smart enough to be able to predict what was going to happen, or when these deals would get done, I'd have a much better job than this one.

Okay, fair enough. And then just lastly, a quick follow up on the headcount question someone asked you. Can you actually break out how many senior management directors you guys -- when you calculate your trailing average, how many are you using in terms of the current quarter for the Advisory (inaudible)?

Hang on a sec; we're going to -- it's got to be a (inaudible) in here for a full year, right?

Yes.

Dan, let me get that you number when the call breaks.

Sure.

Yes, we'll talk to you after the call.

Yes, thanks a lot, guys.

Your final question comes from the line of Eric [Bertrand] with Barclays Capital. Please proceed.

Hey, guys.

Hi, Eric.

On the institutional equities business, I want to understand the nature of the underwriting and how that's shared between the investment bank and the equity business. Seemingly, there was as least one transaction that should have generated 5 to $6 million worth of underwriting revenue, and yet you reported new business revenue just .5 million during the quarter. Is most of it going to the bank? Are you --

No, it's shared 50/50 and what you're -- I don't know what you're referring to, but my suspicion is that you're referring to probably the aggregate fees on that underwriting, not the portion that were received by Evercore.

I can follow up. I was looking at the --

Okay.

-- (inaudible) Banco deal. Okay. So are you incorporating expectations for equity underwriting revenue in that (inaudible) profitability or breakeven?

Yes, yes.

Okay.

It's relatively conservative, but yes.

Okay. And then in the Investment Management business, you're just barely underneath breakeven this quarter. It was very close to your stated goal of year-end 2010 breakeven. With a full quarter of Atalanta Sosnoff, do you think the third quarter is the quarter where we cross that Rubicon?

Well, we don't make forecasts, but I think there are a number of things at play there. Obviously, a full quarter of Atalanta Sosnoff is a positive. The fact that equities happened to close on June 30 at a -- the [dear] for the year affects revenues in the other direction. So I guess somewhere around the 23rd or 24th of October, we'll give you the answer to that question.

Fair enough.

(Inaudible) your point is, it's a real credit to Ralph. He said that we'd have Investment Management run rate breakeven by the end of the year and I would say that we feel pretty good right now about the way it's going and that's really a credit to Ralph because he's really taken charge of that and fixed it and put it on a pretty exciting path.

Okay. At the risk of asking another unanswerable question, I'll ask about the Investment Banking third quarter revenues. You noted several deals that have already completed. Given the deals that are already done, not accounting for anything that's still in the pipeline to be done, is it fair to say that third quarter Investment Banking revenues are up sequentially?

Well, I have to say, you described our own question extremely well -- in fact, brilliantly. It's unanswerable.

Fair enough. Okay.

It's unanswerable, but we had a very good July.

By my calculations, that seems to be accurate. A couple of more, I guess, tough questions and so you've got $10 million remaining in your stock repurchase authorization. That's less than what you did in each of the first two quarters of the year. You expect to seek more authorization and do you expect to be a more aggressive net repurchaser?

Well, we've said that we intend to, at a minimum, replace or repurchase shares that are issued in connection with year-end compensation, and we've achieved that, the shares that will vest this year. We continue to be interested in acquiring additional shares. I think we've said this before, that as a general matter, our business is a business that does not require significant amounts of incremental capital, so that either through dividends or share repurchases, we should be able to return close to all of our earnings to our shareholders on an annual basis. So we -- and certainly at current share levels, we think the stock is an attractive purchase for the firm.

Okay. My last question is on non-comp. Roger, you commented that you don't focus necessarily on the absolute level of expenses, but on the ratio.

No, we focus on both, but I'm saying that the -- obviously, (inaudible) Evercore is going to be three years from now, we're going to be a much bigger firm. Our revenues are going to be a lot higher. I suppose our absolute level of non-comp will be higher, but the real key will be that the ratio of non-comp to revenue will be lower. So we have very big growth ambitions, so what you should focus on primarily is the ratio because if you start new initiatives, you're going to have some costs associated with starting them.

I can absolutely appreciate that and that's where my question was going.

When we look at --

We look at the target. We look at both.

Yes, I think that what we've said is that over a period of time, once our businesses are more mature, we would expect -- and obviously, this ratio is affected a little bit by volatility of revenues because your non-comp expenses tend to be relatively, in any given quarter, relatively stable, but we've said we expect to be able to operate this business once we're in a more normalized investing environment, rather than the investments we're making now, with a non-comp expense ratio that's 15% or less, a comp ratio that's 50 to 55%.And that produces a business that should be able to produce 30 to 35% pretax operating margins. That's where we're headed, but it's going to take a couple of years to get there because we are making some important investments in the diversification and future growth of the firm.

Sounds great. Thanks for the help.

There appear to be no further questions at this time. I would now like to turn the floor to Ralph Schlosstein for closing remarks.

I have nothing to add other than to wish all of you a great rest of the summer.

Thank you, all.

This concludes today's Evercore Partners' second quarter 2010 financial results conference call. You may now disconnect.